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GST Clearing House For Netting & Appropriation of Taxes - Alarming or Wonderful

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  • Rebecca Andrews
    Beautiful in its simplicity : Following excerpts from hindubusinessline circulated by Mr. Halakhandi, would help quicker settlement of dues flowing to states,
    Message 1 of 1 , Oct 3, 2009
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      Beautiful in its simplicity :

      Following excerpts from hindubusinessline circulated by Mr. Halakhandi, would help quicker settlement of dues flowing to states, would throw up fictitious transactions and help checking evasion. 

      Dealers with political clout will be up in arms against this system. Days of making easy money by transferring invoices without accompanying goods would come under severe strain. Cases by Enforcement wings could be booked while sitting before computer screen without even raiding the parties.

      I am told that frauds relating to cheques by insider staff involvements reduced after setting up of electronic clearing house. My father also tells me about chaotic clearing in old BSE where things were not settled for months together.

      Looks as if genuine transactions would be quicker to settle and hasslefree.

      Yet, for every plus, there is a minus. What will be the arguments against this system ?

      Rebecca Andrews


      A new conceptual model — integrated GST (IGST) — involving the setting up of a clearing house at the Centre is being “actively considered” for inter-State transactions under the proposed Goods and Services Tax (GST) system. Under this model, Centre will levy IGST on all inter-State transactions. Transfer of funds will essentially happen between a State and the clearing agency at the Centre. Fund transfer between one State and another will not be required, a senior State government official privy to the discussions on this model at the Empowered Committee of State Finance Ministers on VAT said. The IGST model meets the requirement of destination system, offers continuous chain of GST with minimum refund, has equal treatment of intra-state and inter-state transactions and does not require that much computerisation at the State level, the official said. All inter-State dealers would be e-registered and the number road check-posts will also be minimised. In the IGST model, the Centre will play a dominant role through the clearing agency for settling the inter-State transactions. As each state is an importer as well as an exporter, only the net sum will be transferred. This will be calculated by the clearing house every month. “We are taking advantage of the netting principle,” the official said. The Centre will levy IGST on all inter-State transactions. IGST is combination of the Central component of the GST (CGST) and State component of GST. The seller will pay IGST on the value addition after adjusting the available credit on IGST, CGST and SGST on his purchases in that order. The exporting State will transfer to the Centre the credit of State component of GST used in the payment of IGST and the Centre will transfer to the importing state the credit of IGST used in the payment of State component of GST. “The idea is we are coming with a new concept of combining the CGST and SGST. Importing dealer will claim credit of IGST while clearing his tax liability. The inter-state seller pays the IGST after he takes the credit of input SGST. The credit of SGST so availed becomes due to the Centre from the exporting state. So the exporting state gives the credit to the Central Government. On the other hand, the inter-state purchaser uses the IGST credit to pay his IGST, CGST or SGST liability”, the official said. The advantage is that a purchaser can use the IGST credit to settle whatever liability he has to settle his tax dues. Otherwise, he had to make upfront payment and wait for refunds. The chain became cumbersome. Till the last meeting of the Empowered Committee in mid-September, the State finance ministers were looking at the reverse charge model. However, they have now given up that model and agreed to pursue with the IGST model. Indications are that the IGST model will be discussed at the meeting between State Finance Ministers and the Union Finance Minister, Mr Pranab Mukherjee on October 8. – www.thehindubusines sline.com

      Kind regards,

      Rebecca Andrews

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